bk rand 003327 -antifragile

8/13/2019 BK RAND 003327 -Antifragile

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T H I N G S T H A T G A I N F R O M D I S O R D E R

NASSIMNICHOLAS TALEB

Antifragile

ANTIFRAGILE

Supplemental Graphics

Copyright 2012 by Nassim Nicholas Taleb


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Contents

Graphic 1 1-5

Graphic 2 6Graphic 3 7-8

Graphic 4 9

Graphic 5 9

Graphic 6 9Graphic 7 10


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TABLE 1 THE CENTRAL TRIAD: THREE TYPES OF EXPOSURE

FRAGILE ROBUST ANTIFRAGILE

Mythology Sword of Damocles Phoenix Hydra Greek Rock of Tantalus

Mythology Dr. John Nero Tulip Fat Tony, New York Yevgenia Krasnova* and Brooklyn

Black Swan Exposed to negative Exposed to positive Black Swans Black Swans

Businesses New York: Silicon Valley: Banking system Fail fast,

Be foolish.

Biological & Efficiency, Redundancy Degeneracy Economic optimized (functional Systems redundancy)

Errors Hates mistakes Mistakes are Loves mistakes just information (since they are

small)

Errors Irreversible, large Produces reversible, (but rare) errors, small errors blowups

Science/ Directed Research Opportunistic Stochastic Tinkering Technology research (antifragile tinkering

or bricolage)

Dichotomy Studying events, Studying Modifying exposure event- measuring their exposure to to events exposure risks, statistical events, properties of statistical events properties of

exposures

Science Theory Phenomenology Heuristics,practical tricks

Human Body Mollification, Mithridatization Hormesis, atrophy, aging, Recovery Hypertrophy

sarcopenia

* Dr John, Nero Tulip, Fat Tony, and Yevgenia Krasnova are characters in TheBlackSwan. Nero Tulip is also a character in Fooled by Randomness.

GRAPHIC 1.

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Ways of Modernity Medieval Ancient Thinking Europe Mediterranean

Human Friendship Kinship Attraction relationships

Ancient Apollonian Dionysian Balanced mixture Culture of Apollonian (Nietzsche) and Dionysian

Ethics The weak The magnificent The strong

Ethics System without System with System with soul

skin in the game skin in the game in the game

Regulation Rules Principles Virtue

Systems Concentrated Distributed sources sources of of randomness randomness

Mathematics Nonlinear- Linear, or Nonlinear-Convex (functional) Concave, or Convex-Concave

Concave-convex

Mathematics Left-Skewed (or Low volatility Right-Skewed (or (probability) negative skewed) positive skewed)

Option Trading Short Volatility, Flat Volatility Long volatility, gamma, vega gamma, vega

Knowledge Explicit Tacit Tacit with convexity

Epistemology True-False Sucker-Nonsucker

Life and Tourist Flneur with a Thinking Personal and large private library intellectual

Financial Corporate Dentist, taxi driver, artisan, dependence employment, dermatologist, prostitute, Tantalized class niche worker, F*** you money minimum wage

earner

Learning Classroom Real life, Real life and

pathemata library mathemata

Political Nation-State; Collection of Systems Centralized City-States;

Decentralized

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Social System Ideology Mythology

Post- Nomadic and agricultural hunter-gatherer Modern tribes Settlements

Knowledge Academia Expertise Erudition

Science Theory Phenomenology Evidence-basedphenomenology

Psychological Post traumatic Post traumatic

Well-Being syndrome growth

Decision Model-based Heuristic-based Convex Making probabilistic decision heuristics decision making making

Thinkers Plato, Aristotle, Early Stoics, Roman Stoics, Averroes Menodotus of Nietzsche, Nietzsche Nicomedia, perhaps Hegel Popper, Burke, (sublation), Jaspers Wittgenstein,

John Gray

Economic Life Econophasters Anthropologists Religion Cults

Economic Life Bureaucrats Entrepreneurs (effect on

economic life)

Reputation Academic, Postal employee, Artist, Writer (profession) corporate truck driver,

executive, Pope, train conductorBishop, Politician

Reputation Middle Class Minimum wage Bohemian,(class) persons aristocracy, old money

Medicine Viapositiva Via negativa Additive treatment Subtractive (give medication) treatment (remove

items from

consumption, saycigarettes, carbs, etc.)

Philosophy/ Rationalism Empiricism Skeptical, subtractive Science empiricism

Separable Holistic

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Economic Life Owner operated

Finance Short Option Long Option

Knowledge Positive Science Negative Science Art

Stress Chronic stressors Acute stressors,with recovery

Decision Acts of Acts of omission Making commission (missed opportunity)

Literature E-Reader Book Oral Tradition

Business Industry Small Business Artisan

Food Food Companies Restaurants

Finance Debt Equity Venture capital

Finance Public Debt Private debt Convertible with no bailout

General Large Small but Small but notspecialized specialized

General Monomodal Barbell

Risk taking Markowitz Kelly criterion Kelly criterion usingfinite bets

Legal System Statutory law, Common Law,Legal Code equity

Regulation Code of regulations Heuristic regulations

Finance Banks, Hedge funds Hedge funds Hedge funds managed by (some) (some) econophasters.

Business Agency Problem Principal operated

Noise-Signal Signal only Stochasticresonance, simulatedannealing

Model Error Concave to errors Convex to errors

Education Soccer mom Street life Barbell: parentallibrary, street fights

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Physical Organized sports. Street fights

Training gym machines

Urbanism Robert Moses,

Le Corbusier Jane Jacobs

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Time Time

FIGURE 3. Municipal noise, distributed variations in the souks (first) compared to that of cen

tralized or human-managed systems (second)or, equivalently, the income of a taxi drive

(first) and that of an employee (second). The second graph shows moves taking place fro

cascade to cascade, or Black Swan to Black Swan. Human overintervention to smooth o

control processes causes a switch from one kind of system, Mediocristan, into another, E

tremistan. This effect applies to all manner of systems with constrained volatilityhealtpolitics, economics, even someones mood with and without Prozac. Or the difference be

tween the entrepreneur-driven Silicon Valley (first) and the banking system (second).

Process Process

Time Time

GRAPHIC 2.

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TABLE 3 FRAGILI ZING INTERVEN TIONISM AND ITS EFFECTS

ACROSS DISCIPLINES

EXAMPLE OF IATROGENICS/

FIELD INTERVENTIONISM COSTS

Medicine, Health Overtreatment Fragility

Steady feedings, thermal Medical error stability, etc.denying the

human body randomness Sicker (but longer-living) humans, richer pharma, Pharmaceutical addition, antibiotic-resistant not subtraction bacteria

Ecology Micromanaging forest fires Worsening total riskslarger big ones

Politics Central planning Informational opacity

U.S. supporting rotten Chaos after a revolution regimes for the sake of

stability

Economics No More Boom and Bust Fragility (Greenspan (US), Labor (UK)),

Great Moderation (Bernanke) Deeper crises when they happen State interventionism

Support for established, Optimization state-friendly corporations;

stifling of entrepreneurs Illusion of pricing rare events,

value-at-risk methodologies, Vulnerability, illusion of economies of scale, pseudo-efficiency ignorance of second-order

effects Big-time blowups

Business Positive advice (charlatans), Richer charlatans, focus on return not risk bankrupt businesses (what to avoid)

Urbanism City planning Urban blight, inner cities,depressions, crime

Forecasting Forecasting in Black Swan Hidden risks (People take

Domain (Fourth Quadrant) more risks when supplied in spite of the horrible with a forecast) track record

Literature Copy editors trying to Blander, more New change your text York Timesstyle

commoditized writing

GRAPHIC 3.

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EXAMPLE OF IATROGENICS/

FIELD INTERVENTIONISM COSTS

Parenting Soccer mom (or pop): Touristification of

removing every random childrens minds element from childrens lives

Education The entire concept is Ludification transformation grounded in interventionism of childrens brain

Technology Neomania Fragility, alienation,nerdification

Media High-frequency sterile Disruption of the noise/ information signal filtering mechanism

Interventionism

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FIGURE 5. Thales antifragility. He pays little to get a huge potential. We can see the asym-

metry between upside and downside.

Profits in Stater (Thekel)

unlimited gains

Rent for Oil Press

limited loss

30

20

10

10 20 30 40 50

Variable

X

Gains Losses

f X

Gain

Pain

You are here Variable

X

Gains Losses

f X

Pain

Gain

You are here

FIGURE 12.Pain More than Gain, or Gain More than Pain. Assume you start from the You Are

Here spot. In the first case, should the variable xincrease, i.e., move to the right on the hori-

zontal axis, the gains (vertical axis) are larger than the losses encountered by moving left, i.e.,

an equivalent decrease in the variable x. The graph illustrates how positive asymmetry (first

graph) turns into convex (inward) curving and negative asymmetry (second graph) turns into

concave (outward) curving. To repeat, for a set deviation in a variable, in equivalent amounts in

both directions, the convex gains more than it loses, and the reverse for the concave.

You are here

You are here

VariableX

Pain

Pain

Gain

GainVariable

X

Gains/Losses

f(X)

Gains/Losses

f(X)

Event Size

X

Harm

f X

Black Swan Event Event Size

X

Benefit

f X

Positive Black Swan Event

FIGURE 13. Two exposures, one linear, one nonlinear, with negative convexitythat is,

concavityin the first graph, positive convexity in the second. An unexpected event affects the

nonlinear disproportionately more. The larger the event, the larger the difference.

Harm

f(X)Benefit

f(X)Event Size

X

Black Swan Event

Positive Black

Swan Event

Event Size

X

GRAPHIC 4.

GRAPHIC 5.

GRAPHIC 6.

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TABLE 7 ETHICS AND THE FOUNDATIONAL ASYMMETR Y

SKIN IN THE GAME FOR THE SAKE NO SKIN IN THE GAME SKIN IN THE GAME OF OTHERS, OR SOUL IN THE GAME

(Keeps upside, transfers (Keeps his own (Takes the downside on downside to others, downside, takes his behalf of others, or

owns a hidden option at own risk) universal values) someone elses expense)

Bureaucrats Citizens Saints, Knights, Warriors,Soldiers

Cheap talk (tawk Actions, no tawk Expensive talk in Fat Tonys lingo)

Consultants, sophists Merchants, Prophets, PhilosophersBusinessmen (in the pre-modern sense)

Businesses Artisans Artists, Some artisans

Corporate Executives Entrepreneurs Entrepreneurs/Innovators (with suit)

Theoreticians, data Laboratory and field Maverick scientists miners, observational experimenters

studies

Centralized Government of city Municipal government government states

Editors Writers Great writers

Journalists who Speculators Journalists who take risks analyze and predict and exposefrauds (powerful

regimes, corporations)

Politicians Activists Rebels, Dissidents,Revolutionaries

Bankers Traders (They would not engage invulgar commerce)

Fragilista Prof. Fat Tony Nero Tulip Dr. Joseph Stiglitz

Risk Vendors Taxpayers (not quite voluntarilysoul in the game, but theyare victims)

GRAPHIC 7.

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